Stern v. Continental Assurance Co. (In re Ryan)

851 F.2d 502 (1988)

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Stern v. Continental Assurance Co. (In re Ryan)

United States Court of Appeals for the First Circuit
851 F.2d 502 (1988)

DH

Facts

Ryan (debtor) purchased a condominium in Hartford, Vermont, subject to a mortgage held by the Quechee Lakes Corporation (Quechee). Quechee recorded the mortgage deed in the Hartford town clerk’s office. However, the recorded mortgage deed was only signed by one witness, not two as statutorily required. Quechee subsequently assigned the mortgage to Continental Assurance Co. (CAC). CAC properly recorded the assignment. Ryan filed for bankruptcy several years later. Stern, the bankruptcy trustee, sought to sell the condominium and performed a title search. The title search showed CAC’s mortgage. However, Stern believed that CAC’s mortgage was ineffective under Vermont law because it lacked the second witness signature. Stern and CAC (creditors) agreed to sell the property with the understanding that Stern would file an adversary proceeding seeking a determination of which party had priority to the sale proceeds. The bankruptcy court found that Stern had both constructive notice and inquiry notice of CAC’s mortgage. Therefore, the bankruptcy court dismissed Stern’s complaint. The district court found that notice was irrelevant considering the invalid mortgage deed and reversed the bankruptcy court’s ruling. CAC appealed.

Rule of Law

Issue

Holding and Reasoning (Campbell, C.J.)

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